Q: What were your index system's annual returns? And, the long/short trades?
A:
The Index results since 1973 are:
Long only (excludes interest while in money market funds):
-1.5, -5.9, 19, 15.5, -0.8, 16, 20.7, 30.3, 4.1, 27.1, 29.6, -8.3, 32.2, 14, 11.8, 2, 19.9, 2.9, 48.8, 17, 1.4, -2, 30.8, 8.9, 22.2, 33, 62.8, -9.3, 4.4, -5.6, 47.1, 7.3, 9.6 (annual average rate of change 15.5%.)
Long/Short (exludes interest while short:)
7.5, 17.4, 19, 15.6, -9.2, 18.9, 20.7, 30.3, 10.8, 40, 29.6, -8.3, 33.2, 20.8, 11.8, 2, 20.6, 29.6, 48.8, 17, -11, -1.9, 30.8, 8.9, 22.4, 47.8, 62.8, 25.2, 62.5, 18.1, 47.1, -2, -1.6 (annual average rate of change 21.5%)
We do not have individual trades of Q/8 or Q/25 stored anywhere easy to publish. We are now tracking such stats, but only since we went live on a website based system, starting in March. The q/25 trades are also tracked by Marketocracy.com, though they have yet to put a system in place to easily see these trades in print.
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Q: What is the average drawdown from the high in your sell signals?
A:
We don't know the answer to the draw-downs from the high. All tests are run
on money in the bank after the trade is closed, versus all other methods. We
have done a ton of work on trying to lock in profits sooner via tighter
signals and they make less money over time than our current approach.
A glance at the arrows on the charts of stocks shows that sometimes the AK
system sells too soon, sometimes too late, and sometimes spot on. The
current set up makes more money than all other trading methods.
Our system works on buying portfolios of great stocks when the stock market
flips into buy mode, with the view of trying to hold onto them until the
next sell signal, while letting winners run, while cutting losses on the
weaker stocks quicker.
There are 3.1 new buys for the stock market each year, on average.
We are simply focused now on selling when we need to sell - adding shorts
for the portfolios that trade short during the sell signal - and letting the
stock market do its thing until the next buy signal. Then we'll load up long
again. And repeat. And repeat.
I can say with some confidence that a drop of a certain percentage from a
peak will be a great ENTRY opportunity only if the stock market moves to new
highs after purchase, while the same drop for the stock will be a great EXIT
signal if the stock market flips into and stays in sell mode.
Since one never knows which dip is which, all we can do is run tests on all
dips, and all rallies, to see which set of indicators make the most money
with the least volatility overall.
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Q: I recently subscribed. Is it too late to buy your stocks? What if we are near a sell signal?
A:
You ask a very important, and very difficult question. I can say that we are
ourselves face this dilemma 3 times per year on average, which is the number
of times the stock market gives new buy signals. (Some years such as 1995 and
2003 never give a sell signal, but those are rare.)
So each time we put our entire portfolio long we face the possibility that
the buy signal would prove a failure, and that we will lose some money as the
sell signal soon emerges. All we can do is to keep taking such hopefully
modest haircuts so that we can enjoy the larger gains when the stock market
delivers on a buy signal.
Avoiding those stocks in our portfolios that have gone down more than 5%, and
those that have gone up more than 15%, should ensure that any entry is close
to our optimum buy point.
No one knows when the next stock market sell signal will come. The most
important element of everything we cover is the trading stance of the
Alphaking Trading Indicator. We can feel bearish as heck, and pretty darn
sure the stock market will fall, and we are still going to be invested long
while-ever that indicator tells us to. It is a trend-following indicator, and
does not forecast what will happen. we designed that indicator to tell us
what to do to weed out the noise of everything else.
Take a peek at the trading profile of the NASDAQ index in the Charts page to
get a glimse of expectations, espeically in regards to past hit rate, and
average profit on wins versus what is lost on failed signals. (That last part
is where our system aims to outpeform, rather than any forecasting miracle.)
The Index portfolio will trade short when the Alphaking Trading Indicator
flips into sell mode (with 401K and long-only investors moving into a money
market fund.)
The GrQ/8 Hedge fund portfolio will take some short positions.
The GrQ/25 small cap portfolio is long only, and will sit out sell signals in
cash.
Shorting is way tougher than trading long. Most people should trade long
only. Our research does show that trading short can make money, though it's a
lot more volatile ride.
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Q: Why don't you use stop orders?
A:
Stops don't work, though technical trend-following triggers do.
Think about it thusly, you enter a stock trade with about a 50-50 chance of making a profit. If you set a stop, then maybe 1/2 of your would-be winners will be stopped out, along with the other 1/2 that were destined to be failed trades. That leaves a 25% hit rate, and that is tough to overcome.
Technical trend following triggers, on the other hand, also work 50% of the time, with zippo reduction for anything other than what the trend following signal is destined to deliver on over time.
In testing, these technical trend-following triggers have approximately a 10% average loss on the failed trades, though any one trade can be significantly higher.
You can see this at work by pulling up charts on the main chart page, and looking at the average loss, then take a peek down the full trade list. Diversification helps smooth some of those larger than would like to see drops.
Traders and investors can set stops with any of our positions if they like. If a position does trigger an exit signal after puirchase, it will be replaced with another pick if the stock market trend remains in place. We use the Alphaking Trading indicator - for the stock in question - to trigger exits in our positions once entered.
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Q: How did your GrQ/8 long & short portfolio perform each year from 2001-05? I really like your system, but want to see how it did in the tough years of 2001, 2002.
A:
GrQ/8...long only...long/short
1999....+21.5%....+21.5%
2000....+10.2%....+58%
2001....+8%.......+88.3%
2002....-1.2%.....+8.9%
2003....+63.3%....+66.8%
2004....-8.2%.....-11.2%
2005....+9.6%.....-1.6%
Note before the end of 2005 we used to allow each stock to stay in the
portfolio once selected until it triggered a sell signal in the stock
itself, with no adjustments made for the action of the stock market.
We ran some major tests in late 2005 that proved beyond a doubt that it was
better to exit all positions on a stock market reversal signal, rather than
letting the stock do its own thing. Thus, returns would have been even
better with that market-linked change.
Past performance is obviously no guarantee of future succes, though we
remain very optimistic that we can continue to outperform going forward over
the long term.
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Q: After a few years, I have decided that daytrading is not for me. It seems the real money is made by sitting.
A:
That's exactly what we found, with the big money made trading intermediate
term rallies. We use a trend following approach, since it beats contrarian
overbought/oversold moves.
There are 3 type of trading ranges that can occur each year. The stock
market can enjoy a terrific rally year that ends well (1995, 1999, 2003,) or
the stock market can have a miserable period of downside action (1987, 1990,
1998, 2000, 2001, 2002,) or the stock market neither goes up much or down
much (1988, 1994, 2004, 2005, 2006.)
Our system was designed to make a killing during the major rally years,
signficantly outperform during the really big decline years, while performing
reasonably well during the sideways churn.
This system was designed for the long term, and we rarely expect trading to
be easy, though we do believe that we will make significant and lasting
returns over the long term. No guarantees, but we are exactly where we want
to be, and are committed to making money both for ourselves and for our
subscribers.
The stock market is a tough business, and we believe the AK system is equally
tough and robust. I use this approach in my own personal investing, both
trading index mutual funds in my retirement account, and via AK stock
portfolios traded at FolioFn.
More conservative investors may simply want to buy index mutal funds and ETFs
using our Index Portfolio approach, while those looking to also trade
individual stocks may find our GrQ portfolio picks helpful.
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